Cash-strapped Rhode Island can’t pay state tax refunds
Source: PROJO
PROVIDENCE — Thousands of Rhode Island income-tax refunds are being delayed longer than previously reported because of state cash-flow problems.
Overall, the state has delayed payment of about 53,000 individual income-tax refunds — totaling about $36.3 million — to make sure it has enough money to pay off state borrowings that come due in June, said Paul L. Dion, chief of the state Office of Revenue Analysis.
When the issue first arose earlier this month, state officials said they were delaying payment of refunds by about three weeks after the returns were processed. As of Tuesday, however, the delay had grown to between four and six weeks, state officials acknowledged.
Normally, when a tax return is processed, it takes the state several days to issue a refund on a return that was filed electronically, a week or so for a return that was filed on paper, state Tax Administrator David M. Sullivan said.
The state Division of Taxation has received numerous complaints from taxpayers who have called the agency looking for their refunds, Sullivan acknowledged. “Our call volume is up,” he said. Meanwhile, several legislators on Tuesday introduced a bill (H 8167) that would force the state to pay interest sooner than required on delayed refunds. One of the bill’s sponsors, state Rep. John J. Loughlin II, R-Tiverton, said, “It’s a fundamental issue of fairness.” Refunds represent “money that belongs to the people who earned it,” and the state should pay them promptly, said Loughlin, a candidate for Congress.
Like other states, Rhode Island routinely borrows early each fiscal year to help cover expenses, then pays back the borrowings later in the year with revenue from taxpayers.
Tax returns filed close to the usual April 15 filing deadline typically have balances due. The payments that accompany those returns are used to help pay off state borrowings.
But this time around, the usual April 15 tax-filing deadline was delayed until May 11 because of the floods. As a result, tax revenue did not flow into state coffers as quickly as it otherwise would.
Mainly for that reason, state officials, with little fanfare, put in place a plan in April to hold refunds for longer than usual, then release them.
For example, a batch of 18,577 refunds that were processed and ready to be issued on April 26 have yet to be distributed. Other weekly batches throughout May have also been held.
(Most state tax refunds were issued earlier this year and are not affected by the delays. As of April 5, for example, the state tax agency had issued 281,107 individual income-tax refunds totaling $144 million.)
The delays have grown — from three weeks initially, to between four and six weeks lately — because the dollar amount of the refunds has declined, Dion said. As a result, the state has had to delay more refunds to meet cash-flow needs, he said.
But the refunds are not being held indefinitely, he said. “As revenues flow in, we release — first-in, first-out — batches of refunds,” Dion said.
“At this point in time, we expect that all refunds will be paid by the end of the fiscal year,” which is June 30, Dion said.
In general, the state is not required to pay interest on refunds until 90 days after the due date for returns, Sullivan said. The interest rate is 3.25 percent. The bill would generally require the state to pay 18 percent interest on refunds that are more than 60 days overdue.
The refund delays are intended to make sure there is enough money to pay about $350 million in borrowings — known as tax anticipation notes, or TANs — due June 30, Dion said. “Everyone knows how volatile the economy has been in the last two years, so the state has taken steps to set aside money in advance,” he said.
To taxpayers, Dion advised, “Be patient. We are paying refunds as quickly as our cash flow allows us.”
Mark Higgins, dean of the University of Rhode Island’s College of Business Administration, said the delays signal “to the market and to the country that we’ve got cash flow problems … We’re not in a very liquid position. That can’t be good.”
It probably will not affect the state’s ability to borrow, but could mean higher interest rates on future borrowings, Higgins said. Some other states have delayed issuing refunds, including Hawaii, which plans to delay payment until July, according to the Associated Press.
Leave a Reply